Liquidity in the banking sector picked up in the week ended on Friday, mainly due to the fact that credit institutions started the week under review with an excess in the reserve deposit accounts which they are legally bound to hold with the Central Bank. Further enhancing this surplus was the sale of Lm10 million worth of treasury bills in the secondary market, direct credits of Lm3.4 million mainly relating to dividend payments and the purchase of Lm2 million worth of foreign currency against Maltese lira by the Bank from credit institutions. Partly mitigating this increase in excess liquidity were payments to Government of Lm8.4 million and outflows of Lm7.6 million in respect of cheque clearing.

Consequently, on Friday, the Central Bank held its usual 14-day term deposit auction, whereby a total of Lm34.7 million was absorbed from the banking sector. Given that Lm25.7 million worth of term deposits matured on the same day, the level of outstanding term deposits held by credit institutions at the Central Bank increased by Lm9 million, from Lm84.8 million to Lm93.8 million. The rate resulting from the latest auction remained at 2.95 per cent, being the floor of the interest rate band (2.95-3 per cent) at which the Central Bank conducts its term deposit auctions.

In the week under consideration, interbank market activity remained practically at the previous week's level. In fact one transaction was effected in the overnight tenor for Lm1.2 million at a rate of 2.9 per cent, unchanged from the previous deal effected last week.

In the primary market, the Treasury invited tenders for 91-day treasury bills to mature on December 3. The number of bids submitted by far exceeded total bids accepted. In fact the Treasury accepted Lm3 million out of a total of Lm34.1 million worth of bids submitted. Given that aggregate bills maturing exactly matched the total issued, the outstanding treasury bills total remained unchanged at Lm255.6 million.

The three-month rate resulting from this auction was 2.9589 per cent, declining slightly from the 2.9601 per cent level from the previous auction for this tenor held on August 20, 2004. The latest rate reflects a bid price of Lm99.2677 per Lm100 nominal.

Today, the Treasury will receive applications for 273-day bills to mature on June 10, 2005. For the following week the Treasury will receive tenders for 91-day bills to mature on December 17.

There was a marked increase in secondary market turnover from last week's level of Lm114,000 to Lm15.3 million. Dealing outside the Central Bank amounted to Lm5 million while the Central Bank effected net purchases of Lm10 million in its role as market maker.